# Tag Info

## New answers tagged pricing-formulae

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You could try Brent's method, it works well.

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No reputation for comments (sorry). What programming language / libraries are you using? I think that the Excel library just does 20 iterations. You might find it useful to look at the Perl module Finance::Math::IRR That particular library uses a secant method. The Gnumeric gnumeric.org apparently uses Newton's. There is a very short paper by Moten ...

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Your question is of empirical nature, a method you may try is Excels IRR function.

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I think I got the quantitative explanation in Steven E. Shreve's "Stochastic calculus for finance II":

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I'm not sure if I understand you perfectly, but basically, you have: $$\mathbb{E}(S_1)= p S_0 u + (1-p) S_0 d = S_0\left[p (u-d) +d \right]$$ This is simply the expectation (i.e. there is no pricing here). Notice that this means that: $$\mathbb{E}\left[\frac{S_1}{S_0}\right]=p (u-d) + d$$ So the expected rate of return is $1+R_S=p (u-d) + d$. If the ...

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